Medicare
Competitive Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but Adequate Oversight Is Critical
Gao ID: GAO-08-767T May 6, 2008
For more than a decade, GAO has reported that Medicare has paid higher than market rates for medical equipment and supplies provided to beneficiaries under Medicare Part B. Since 1989, Medicare has used fee schedules primarily based on historical charges to set payment amounts. But this approach lacks flexibility to keep pace with market changes and increases costs to the federal government and Medicare's 44 million elderly and disabled beneficiaries. The Balanced Budget Act of 1997 required the Centers for Medicare & Medicaid Services (CMS)--the agency that administers Medicare--to test competitive bidding as a new way to set payments. CMS did this through a demonstration in two locations in which suppliers could compete on the basis of price and other factors for the right to provide their products. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) required CMS to conduct competitive bidding on a large scale and suppliers to obtain accreditation. GAO was asked to describe the effects that competitive bidding could have on Medicare program payments and suppliers and the need for adequate oversight to ensure quality and access for beneficiaries in a competitive bidding environment. This testimony is based primarily on GAO work conducted from May 1994 to January 2007, which GAO updated by interviewing CMS officials and reviewing agency documents.
Competitive bidding could reduce Medicare program payments by providing an incentive for suppliers to accept lower payments for items and services to retain their ability to serve beneficiaries and potentially increase their market share. Fundamentally different from fee schedules based on historical charges to Medicare, competitive bidding allows the market to help CMS determine payment amounts. In the demonstration, the new fee schedule amounts were based on the winning suppliers' bids for items included and 50 percent to 55 percent of the bids from suppliers were selected. Evidence from CMS's competitive bidding demonstration suggests that competition saved Medicare $7.5 million and saved beneficiaries $1.9 million--without significantly affecting beneficiary access. For the competitive bidding program, CMS required suppliers to obtain accreditation based on quality standards and provide financial documents to participate. This added scrutiny gives CMS the chance to screen out suppliers that may not be stable, legitimate businesses, which could contribute to lower rates of improper payment. CMS also evaluated the bids based on demand, capacity, and price and chose suppliers whose bids were at or under a certain amount. CMS estimates that the first round of its competitive bidding program will result in payment amounts that average 26 percent less than the current fee schedule amounts. Competitive bidding also changes Medicare's relationship with suppliers and departs from Medicare's practice of doing business with any qualified provider, because it is designed to limit the number of suppliers to those whose bids are at or under a certain amount. Because of concerns that competitive bidding may prompt suppliers to cut their costs by providing lower-quality items and curtailing services, ensuring quality and access through adequate oversight is critical for the success of the competitive bidding program. In September 2004, GAO indicated that quality assurance steps could include monitoring beneficiary satisfaction, setting standards for suppliers, giving beneficiaries a choice of suppliers, and selecting winning bidders based on quality and the dollar amount of the bids. As competitive bidding expands, problems that beneficiaries might experience could be magnified. Therefore, continued monitoring of beneficiary satisfaction will be critical to identify problems with suppliers or with items provided to beneficiaries. As required in the MMA, GAO will review and report on the competitive bidding program's impact on suppliers and manufacturers and its effect on quality and access for beneficiaries.
GAO-08-767T, Medicare: Competitive Bidding for Medical Equipment and Supplies Could Reduce Program Payments, but Adequate Oversight Is Critical
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Supplies Could Reduce Program Payments, but Adequate Oversight Is
Critical' which was released on May 6, 2008.
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Testimony:
Before the Subcommittee on Health, Committee on Ways and Means, House
of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 1:00 p.m. EDT:
Tuesday, May 6, 2008:
Medicare:
Competitive Bidding for Medical Equipment and Supplies Could Reduce
Program Payments, but Adequate Oversight Is Critical:
Statement of Kathleen M. King:
Director, Health Care:
GAO-08-767T:
GAO Highlights:
Highlights of GAO-08-767T, a testimony before the Subcommittee on
Health, Committee on Ways and Means, House of Representatives.
Why GAO Did This Study:
For more than a decade, GAO has reported that Medicare has paid higher
than market rates for medical equipment and supplies provided to
beneficiaries under Medicare Part B. Since 1989, Medicare has used fee
schedules primarily based on historical charges to set payment amounts.
But this approach lacks flexibility to keep pace with market changes
and increases costs to the federal government and Medicare‘s 44 million
elderly and disabled beneficiaries. The Balanced Budget Act of 1997
required the Centers for Medicare & Medicaid Services (CMS)”the agency
that administers Medicare”to test competitive bidding as a new way to
set payments. CMS did this through a demonstration in two locations in
which suppliers could compete on the basis of price and other factors
for the right to provide their products. The Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (MMA) required CMS to
conduct competitive bidding on a large scale and suppliers to obtain
accreditation.
GAO was asked to describe the effects that competitive bidding could
have on Medicare program payments and suppliers and the need for
adequate oversight to ensure quality and access for beneficiaries in a
competitive bidding environment. This testimony is based primarily on
GAO work conducted from May 1994 to January 2007, which GAO updated by
interviewing CMS officials and reviewing agency documents.
What GAO Found:
Competitive bidding could reduce Medicare program payments by providing
an incentive for suppliers to accept lower payments for items and
services to retain their ability to serve beneficiaries and potentially
increase their market share. Fundamentally different from fee schedules
based on historical charges to Medicare, competitive bidding allows the
market to help CMS determine payment amounts. In the demonstration, the
new fee schedule amounts were based on the winning suppliers‘ bids for
items included and 50 percent to 55 percent of the bids from suppliers
were selected. Evidence from CMS‘s competitive bidding demonstration
suggests that competition saved Medicare $7.5 million and saved
beneficiaries $1.9 million”without significantly affecting beneficiary
access. For the competitive bidding program, CMS required suppliers to
obtain accreditation based on quality standards and provide financial
documents to participate. This added scrutiny gives CMS the chance to
screen out suppliers that may not be stable, legitimate businesses,
which could contribute to lower rates of improper payment. CMS also
evaluated the bids based on demand, capacity, and price and chose
suppliers whose bids were at or under a certain amount. CMS estimates
that the first round of its competitive bidding program will result in
payment amounts that average 26 percent less than the current fee
schedule amounts. Competitive bidding also changes Medicare‘s
relationship with suppliers and departs from Medicare‘s practice of
doing business with any qualified provider, because it is designed to
limit the number of suppliers to those whose bids are at or under a
certain amount.
Because of concerns that competitive bidding may prompt suppliers to
cut their costs by providing lower-quality items and curtailing
services, ensuring quality and access through adequate oversight is
critical for the success of the competitive bidding program. In
September 2004, GAO indicated that quality assurance steps could
include monitoring beneficiary satisfaction, setting standards for
suppliers, giving beneficiaries a choice of suppliers, and selecting
winning bidders based on quality and the dollar amount of the bids. As
competitive bidding expands, problems that beneficiaries might
experience could be magnified. Therefore, continued monitoring of
beneficiary satisfaction will be critical to identify problems with
suppliers or with items provided to beneficiaries. As required in the
MMA, GAO will review and report on the competitive bidding program‘s
impact on suppliers and manufacturers and its effect on quality and
access for beneficiaries.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-767T]. For more
information, contact Kathleen M. King at (202) 512-7114 or
kingk@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here as you discuss the Medicare competitive bidding
program for durable medical equipment (DME), prosthetics, orthotics,
and supplies--products referred to in this statement as medical
equipment and supplies.[Footnote 1] For more than a decade, we and the
Department of Health and Human Services (HHS) Office of Inspector
General (OIG) have periodically reported that Medicare, administered by
the Centers for Medicare & Medicaid Services (CMS), has paid higher
than market rates for various medical equipment and supply
items.[Footnote 2] These overpayments increase costs to the program and
to Medicare's 44 million elderly and disabled beneficiaries. CMS
reported in 2007 that total Medicare expenditures for medical equipment
and supplies were about $10 billion.[Footnote 3]
Since 1989, Medicare has paid for medical equipment and supplies
through fee schedules that list a maximum and minimum payment amount.
The schedules are based on average supplier charges on Medicare claims
in 1986 and 1987 and have been updated in some years to reflect
inflation.[Footnote 4] However, this payment approach lacks flexibility
to keep pace with market changes, and as a result, Medicare often pays
higher prices than other public payers for medical equipment and
supplies. The Balanced Budget Act of 1997 (BBA)[Footnote 5] required
CMS to test competitive bidding as a new way for Medicare to set fees
for Part B items and services specified by CMS, which the agency did
through a demonstration focused on medical equipment and supplies.
[Footnote 6] Competitive bidding is a process in which suppliers of
medical equipment and supplies compete for the right to provide their
products on the basis of established criteria, such as quality and
price. About a year after the demonstration concluded, the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)
required CMS to conduct a competitive bidding program for DME,
supplies, off-the-shelf orthotics, and enteral nutrients and related
equipment and supplies on a large scale.[Footnote 7]
In my testimony today, I will discuss (1) the effects that competitive
bidding could have on Medicare program payments and suppliers and (2)
the need for adequate oversight to ensure quality and access for
beneficiaries in a competitive bidding environment. My testimony is
based primarily on our previously issued work, conducted from May 1994
to January 2007, which we updated with information on the competitive
bidding process by interviewing CMS officials and reviewing agency
documents. We shared a statement of facts regarding this testimony with
CMS and incorporated the agency's comments as appropriate. We conducted
this performance audit from April 2008 through May 2008 in accordance
with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
In summary, competitive bidding could reduce Medicare program payments
by providing an incentive for suppliers to accept lower payments for
items and services to retain their ability to serve beneficiaries and
potentially increase their market share. Fundamentally different from
fee schedules based on historical charges to Medicare, competitive
bidding allows the market to help CMS determine payment amounts. In the
demonstration, the new fee schedule amounts were based on the winning
suppliers' bids for items included and 50 percent to 55 percent of the
bids from suppliers were selected. Evidence from CMS's competitive
bidding demonstration suggests that competition saved Medicare $7.5
million and saved beneficiaries $1.9 million--without significantly
affecting beneficiary access. For the competitive bidding program, CMS
required suppliers to obtain accreditation based on quality
standards[Footnote 8] and provide financial documents to participate.
This added scrutiny gives CMS the chance to screen out suppliers that
may not be stable, legitimate businesses, which could contribute to
lower rates of improper payment. CMS also evaluated the bids based on
demand, capacity, and price and chose suppliers whose bids were at or
under a certain amount. CMS estimates that the first round of its
competitive bidding program will result in payment amounts that average
26 percent less than the current fee schedule amounts. Competitive
bidding also changes Medicare's relationship with suppliers and departs
from Medicare's practice of doing business with any qualified provider,
because it is designed to limit the number of suppliers to those whose
bids are at or under a certain amount.
Because of concerns that competitive bidding may prompt suppliers to
cut their costs by providing lower-quality items and curtailing
services, ensuring quality and access through adequate oversight is
critical for the success of the competitive bidding program. In
September 2004, GAO indicated that quality assurance steps could
include monitoring beneficiary satisfaction, setting standards for
suppliers, giving beneficiaries a choice of suppliers, and selecting
winning bidders based on quality and the dollar amount of the bids. As
competitive bidding expands, problems that beneficiaries might
experience could be magnified. Therefore, continued monitoring of
beneficiary satisfaction will be critical to identify problems with
suppliers or with items provided to beneficiaries. As required in the
MMA, GAO will review and report on the competitive bidding program's
impact on suppliers and manufacturers and its effect on quality and
access for beneficiaries.
Background:
Medicare is the federal program that helps pay for a variety of health
care services for about 44 million elderly and disabled beneficiaries.
Most Medicare beneficiaries participate in Medicare Part B, which helps
pay for certain physician, outpatient hospital, laboratory, and other
services; medical equipment and supplies, such as oxygen, wheelchairs,
hospital beds, walkers, orthotics, prosthetics, and surgical dressings;
and certain outpatient drugs.[Footnote 9] Medicare Part B pays for most
medical equipment and supplies using a series of fee schedules.
Generally, Medicare has a separate fee schedule for each state that
includes most items, and there are upper and lower limits on the
allowable amounts that can be paid in different states to reduce
variation in what Medicare pays for similar items in different parts of
the country. Medicare pays 80 percent of the lesser of the actual
charge for the item or fee schedule amount for the item, and the
beneficiary pays the balance. Beneficiaries typically obtain medical
equipment and supplies from suppliers, who submit claims to Medicare on
beneficiaries' behalf. Suppliers include medical equipment retail
establishments and outpatient providers, such as physicians, home
health agencies, and physical therapists. To handle claims processing
for medical equipment and supplies, CMS contracts with durable medical
equipment Medicare administrative contractors.
The Competitive Bidding Demonstration:
Using its authority under the BBA, CMS conducted a competitive bidding
demonstration to set Medicare Part B payment rates for groups of
selected medical equipment and supplies.[Footnote 10] CMS contracted
with Palmetto Government Benefits Administrators (Palmetto) to
administer the competitive bidding demonstration,[Footnote 11] which
was implemented in two locations--the Polk County, Florida,
metropolitan statistical area and parts of the San Antonio, Texas,
metropolitan statistical area.
Two cycles of bidding took place in Polk County, with competitively set
fees effective from October 1, 1999, to September 30, 2001, and from
October 1, 2001, to September 30, 2002. One cycle of bidding took place
in San Antonio, and competitively set fees were effective from February
1, 2001, to December 31, 2002. Bidding and implementation processes
were similar at both locations. The demonstration ended on December 31,
2002.
The Competitive Bidding Program:
In December 2003, the MMA required CMS to conduct competitive bidding
for DME, supplies, off-the-shelf orthotics, and enteral nutrients and
related equipment and supplies on a large scale.[Footnote 12] The MMA
required that competition under the program begin in 10 of the largest
metropolitan statistical areas in 2007, in 80 of the largest
metropolitan statistical areas in 2009, and in other areas after 2009.
The law established a new accreditation requirement for all Medicare
suppliers of medical equipment and supplies and required CMS to develop
financial and quality standards to use in selecting suppliers for the
competitive bidding program. The law required CMS to take appropriate
steps to ensure that small suppliers have an opportunity to be
considered for participation in the competitive bidding program. CMS
was required to establish a methodology for selecting bids from
suppliers so that enough suppliers were selected to meet demand for
competitively bid items within a given area. The law specified that at
least two suppliers would be selected in each competitive area. The law
also precluded judicial or administrative review of CMS's decisions to
establish payment amounts, award contracts, designate areas for
competition, select items and services, phase in implementation, and
determine the bidding structure and number of suppliers selected under
the competitive bidding program. The MMA required that an advisory
committee be established to assist in carrying out the program.
To help implement the competitive bidding program, CMS published its
notice of proposed rulemaking on May 1, 2006, and its final rule on
April 10, 2007. CMS's final rule provided more detail on the agency's
implementation steps. For example, the law specified that the agency
could not award a contract to an entity unless it met applicable
financial standards specified by the Secretary of HHS. In its
regulation, CMS specified the financial documents that had to be
submitted by suppliers to be considered as potential bidders.
Similarly, while the law indicated that the agency needed to ensure
that small suppliers had an opportunity to participate, the regulation
sets out a process to include a certain number of small suppliers based
on the percentage of those who bid and met all applicable requirements.
CMS established the initial round of bidding in 10 metropolitan
statistical areas that included Charlotte, N.C.; Cincinnati, Ohio;
Cleveland, Ohio; Dallas, Tex.; Kansas City, Mo.; Miami, Fla.; Orlando,
Fla.; Pittsburgh, Pa.; Riverside, Calif.; and San Juan, P.R. On April
9, 2007, CMS opened the initial registration of suppliers for the first
round of bidding and the bid period opened on May 15, 2007. As part of
its program implementation for the first round, CMS conducted a
supplier-education campaign, which included meetings, listserve
announcements, a dedicated Web site, and a toll-free help desk. The bid
period closed on September 25, 2007. CMS concluded bid evaluations and
began the contracting process in March 2008, and the agency plans to
announce the first round of winning suppliers in May 2008. Suppliers
whose bids were disqualified because their bid did not meet program and
bidding requirements will receive a letter informing them of the reason
or reasons for their disqualification. After the program begins,
suppliers whose bids were not chosen generally cannot receive Medicare
payment for the competitively bid items in the metropolitan statistical
areas included in the competitive bidding program. However, suppliers
of certain rental items or oxygen that did not become suppliers in the
competitive bidding program could continue to serve their existing
Medicare customers. Suppliers that did not have bids chosen in the
first round of the program may bid in the future rounds of competition.
CMS said it plans to conduct a beneficiary-education campaign before
the program goes into effect on July 1, 2008.
Competitive Bidding Could Reduce Program Payments by Creating an
Incentive for Suppliers to Accept Lower Payment Amounts:
Competitive bidding could reduce Medicare program payments by providing
an incentive for suppliers to accept lower payment amounts for items
and services to retain their ability to serve beneficiaries and
potentially increase their market share. Using competition to obtain
market prices in order to set payments for medical equipment and
supplies is a new approach for Medicare that is fundamentally different
than relying on fee schedules based on suppliers' historical charges to
Medicare. Competitive bidding allows the market to provide information
to CMS on what amounts suppliers will accept as payment to serve
beneficiaries.
In its demonstration, CMS used a competitive bidding process to
determine which suppliers would be included and the competitively set
fees that they would be paid. From among the bidders, the agency and
Palmetto selected multiple demonstration suppliers to provide items in
each group of related products. Suppliers could submit bids and have
winning bids for one or more groups of items. These suppliers were not
guaranteed that they would increase their business or serve a specific
number of Medicare beneficiaries. Instead, the demonstration suppliers
had to compete for beneficiaries' business. All demonstration suppliers
were reimbursed for each competitively bid item provided to
beneficiaries at the demonstration fee schedule amounts. The new fee
schedules were based on the winning suppliers' bids for items included
in the demonstration. Any Medicare supplier that served demonstration
locations could provide items not included in the demonstration to
beneficiaries.
Evidence from the demonstration suggests that, for the items selected,
competition helped set lower payment amounts and resulted in estimated
program savings of $7.5 million. The demonstration's independent
evaluators also estimated that beneficiaries saved $1.9 million. The
demonstration provided evidence to health policy experts, including us
and the Medicare Payment Advisory Commission, that competitive bidding
for medical equipment and supplies could be a viable way for the
program to use market forces to set lower payments without
significantly affecting beneficiary access.[Footnote 13]
About a year after the demonstration ended, the MMA required CMS to
implement competitive bidding on a large scale and added requirements
that suppliers would have to meet to participate in the competitive
bidding program. The MMA also required the agency to develop quality
standards and for suppliers to be assessed on those standards by
accreditation organizations. In addition, the agency had to include a
financial and quality assessment of suppliers as part of competitive
bidding.
The competitive bidding program was structured to operate much like the
demonstration. Suppliers submitted bids, along with other materials
specified by CMS. The application required suppliers to submit 3 years
of financial documents, including income statements, credit reports,
and balance sheets. The review of the financial documents was used as
part of the criteria for determining which bids to consider. The
bidders had to have a valid Medicare supplier billing number and be
accredited. Suppliers had to submit bids for one or more groups of
items. CMS then evaluated the bids based on demand, capacity, and price
and chose bids that were at or under a certain amount.
CMS estimates that the first round of its competitive bidding program
will result in payment amounts that overall average 26 percent less
than the current fee schedule amounts for the groups of items included,
leading to savings for the Medicare program and its beneficiaries. CMS
based its estimate on the price points suppliers submitted with their
bids, weighted by market area and past utilization of items in each
group. The estimated savings differed by groups of items, with the
largest savings of 43 percent estimated for mail-order diabetic
supplies.
Competitive bidding changes Medicare's relationship with suppliers.
Competitive bidding is designed to reduce payments by allowing CMS to
choose suppliers based on their bids--a change from the long-standing
policy that any qualified provider can participate in the program. The
competitive bidding process was designed to limit the number of
suppliers to those whose bids were at or under a certain amount while
ensuring that enough suppliers were included to meet beneficiary
demand. In the demonstration, 50 percent to 55 percent of the
suppliers' bids were selected. With few exceptions, only the suppliers
whose bids were chosen could be reimbursed by Medicare for
competitively bid items provided to beneficiaries residing in the
demonstration area.[Footnote 14]
Furthermore, competitive bidding could help reduce improper payments
because it provides CMS with the authority to select suppliers, based
in part on new scrutiny of their financial documents and other
application materials. In November 2007, CMS estimated that 10.3
percent of Medicare payments made to suppliers of medical equipment and
supplies were improper--more than double the percentage of improper
payments to other Medicare providers. Providing additional scrutiny of
suppliers gives CMS the opportunity to screen out those whose finances
do not indicate that they are stable, legitimate businesses.
Adequate Oversight Is Critical to Ensure Quality and Access:
Because of concerns that competitive bidding may prompt suppliers to
cut their costs by providing lower-quality items and curtailing
services, ensuring quality and access through adequate oversight is
critical. Limiting the number of suppliers could potentially affect
beneficiaries' access to quality items and services if there are an
insufficient number to meet their needs. For some beneficiaries, having
a choice of suppliers for some items and services could be important.
In our September 2004 report, we evaluated CMS's competitive bidding
demonstration and recommended implementation actions for CMS to
consider, including how to ensure access to quality items and services
for beneficiaries. We indicated that quality assurance steps could
include monitoring beneficiary satisfaction, setting standards for
suppliers, providing beneficiaries with a choice of suppliers, and
selecting winning bidders based on quality, in addition to the dollar
amounts of bids.
The demonstration projects used several approaches for ensuring quality
and services for beneficiaries, including monitoring beneficiary
satisfaction and applying quality measures as criteria to select
winning suppliers. During the demonstration, CMS and Palmetto used full-
time, onsite ombudsmen to respond to complaints, concerns, and
questions from beneficiaries, suppliers, and others. In addition, to
gauge beneficiary satisfaction, independent evaluators of the
demonstration fielded two beneficiary surveys by mail--one for oxygen
users and another for users of other products in the demonstration.
These surveys contained measures of beneficiaries' assessments of their
overall satisfaction, access to equipment, and quality of training and
service provided by suppliers. Evaluators reported survey results
indicating that beneficiaries generally remained satisfied with both
the products provided and with their suppliers. The independent
evaluators identified some areas for concern, including a decline in
the use of portable oxygen among users and the possible shift away from
suppliers making home deliveries, which may have indicated that
suppliers were visiting new medical equipment users less frequently to
provide routine maintenance visits.
Because we considered careful monitoring of beneficiaries' experiences
essential to ensure that any quality or access problems were identified
quickly, we recommended that CMS monitor beneficiary satisfaction with
the items and services provided under the new competitive bidding
program. As competitive bidding expands and affects larger numbers of
beneficiaries, problems such as those identified in the evaluations of
the demonstration projects could become magnified. Therefore, continued
monitoring of beneficiary satisfaction will be critical to identifying
problems with suppliers or with items provided to beneficiaries. When
such problems are identified in a timely manner, CMS may develop steps
to address them. Such monitoring is important, not just when required
by statute, but as part of an ongoing effort to ensure that the
Medicare program is serving its beneficiaries effectively.
CMS agreed with our recommendation and stated that the agency would
monitor the beneficiary satisfaction with the quality and services
provided under the competitive bidding process. CMS also stated in the
preamble of its final rule on accreditation of suppliers published
August 18, 2006, that it expects that implementing medical equipment
and supplies quality standards and accreditation will lead to increased
quality of items and services throughout the industry. Furthermore, CMS
stated that it plans to provide education to Medicare beneficiaries on
the competitive bidding process using approaches such as press
releases, fact sheets, and notices.
We will be assessing CMS's implementation of the competitive bidding
program. As part of the MMA, we are required to review and report on
the program's impact on suppliers and manufacturers and on quality and
access of items and services provided to beneficiaries. As part of this
review, we have been specifically requested to assess CMS's
implementation of the program.
Concluding Observations:
We believe that competitive bidding could reduce payments for both the
Medicare program and beneficiaries. The independent evaluators
estimated savings achieved in the demonstration, and CMS has projected
reductions in payment amounts in its competitive bidding program for
both Medicare and its beneficiaries. In addition, the new financial
standards and accreditation process being implemented in conjunction
with the competitive bidding program should help improve the financial
viability and quality of medical suppliers providing services to
Medicare beneficiaries. But competitive bidding also provides
incentives that could affect access to services and lower quality of
items and services provided to beneficiaries, which need to be
monitored carefully.
Mr. Chairman, this concludes my prepared statement. I will be happy to
answer any questions that you or members of the Subcommittee may have.
Contacts and Acknowledgments:
For further information regarding this testimony, please contact me at
(202) 512-7114 or kingk@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this testimony. Sheila Avruch, Assistant Director; Catina
Bradley; Kelli Jones; Kevin Milne; Lisa Rogers; and Timothy Walker made
contributions to this statement.
[End of section]
Related GAO Products:
Medicare: Improvements Needed to Address Improper Payments for Medical
Equipment and Supplies. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-59]. Washington, D.C.: January 31, 2007.
Medicare Durable Medical Equipment: Class III Devices Do Not Warrant a
Distinct Annual Payment Update. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-06-62]. Washington, D.C.: March 1, 2006.
Medicare: More Effective Screening and Stronger Enrollment Standards
Needed for Medical Equipment Suppliers. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-05-656]. Washington, D.C.:
September 22, 2005.
Medicare: CMS's Program Safeguards Did Not Deter Growth in Spending for
Power Wheelchairs. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-
43]. Washington, D.C.: November 17, 2004.
Medicare: Past Experience Can Guide Future Competitive Bidding for
Medical Equipment and Supplies. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-04-765]. Washington, D.C.: September 7, 2004.
Medicare: CMS Did Not Control Rising Power Wheelchair Spending.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-716T]. Washington,
D.C.: April 28, 2004.
Medicare: Challenges Remain in Setting Payments for Medical Equipment
and Supplies and Covered Drugs. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-833T]. Washington, D.C.: June 12, 2002.
Medicare Payments: Use of Revised "Inherent Reasonableness" Process
Generally Appropriate. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/HEHS-00-79]. Washington, D.C.: July 5, 2000.
Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA
Monitoring Needed. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/HEHS-99-56]. Washington, D.C.: April 5, 1999.
Medicare: Need to Overhaul Costly Payment System for Medical Equipment
and Supplies. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-
102]. Washington, D.C.: May 12, 1998.
Medicare: Home Oxygen Program Warrants Continued HCFA Attention.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-17].
Washington, D.C.: November 7, 1997.
Medicare: Excessive Payments for Medical Supplies Continue Despite
Improvements. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-95-
171]. Washington, D.C.: August 8, 1995.
[End of section]
Footnotes:
[1] Medicare guidance defines DME as equipment that serves a medical
purpose, can withstand repeated use, is generally not useful in the
absence of an illness or injury, and is appropriate for use in the
home. DME includes items such as wheelchairs, hospital beds, and
walkers. Medicare defines prosthetic devices (other than dental) as
devices that are needed to replace body parts or functions. Prosthetic
devices include artificial limbs and eyes, enteral nutrients, ostomy
bags, and cardiac pacemakers. Medicare defines orthotic devices to
include leg, arm, back, and neck braces that provide rigid or semirigid
support to weak or deformed body parts or restrict or eliminate motion
in a diseased or injured part of the body. Medicare-reimbursed supplies
are items that are used in conjunction with DME and are consumed during
the use of the equipment, such as drugs used for inhalation therapy, or
need to be replaced frequently (usually daily), such as surgical
dressings.
[2] A list of related GAO products is included at the end of this
statement.
[3] These expenditures reflect claims submitted April 1, 2006, through
March 31, 2007.
[4] CMS has established a process to price new items that are added to
the fee schedule.
[5] Pub. L. No. 105-33, § 4319(a), 111 Stat. 251, 392 (1997).
[6] Medicare Part B helps pay for certain physician, outpatient
hospital, laboratory, and other services, and medical equipment and
supplies. Beneficiaries are required to pay a monthly premium for their
Part B coverage.
[7] The competitive bidding program changes the way that Medicare
determines the payment amounts for medical equipment and supplies by
replacing the current fee schedule payment amounts for selected items
in certain areas with payment amounts based on competitive bids
submitted by Medicare suppliers. Pub. L. No. 108-173, § 302(b), 117
Stat. 2066, 2224.
[8] The quality standards are to be applied by one or more independent
accreditation organizations designated by the agency. Accreditation is
a process of certifying that health care organizations comply with
specific standards and requirements.
[9] Outpatient drugs covered under Part B include self-administered
drugs, such as certain immunosuppressive and oral anticancer drugs, or
drugs administered in conjunction with DME, such as inhalation drugs
used with a nebulizer. A nebulizer is a device driven by a compressed
air machine that allows the patient to take medicine in the form of a
mist or wet aerosol.
[10] These groups were enteral nutrients, equipment and supplies,
hospital beds and accessories, nebulizer inhalation drugs, manual
wheelchairs and accessories, noncustomized general orthotics, oxygen
contents, equipment and supplies, surgical dressings, and urological
supplies.
[11] In this role, Palmetto was responsible for helping to plan the
demonstration; educating beneficiaries, suppliers, and other
stakeholders about the demonstration; soliciting and evaluating bids;
processing claims; and responding to inquiries and complaints about the
demonstration. CMS maintained oversight responsibility for the
demonstration, reviewed all documents and Palmetto decisions, and made
final design and policy decisions.
[12] Pub. L. No. 108-173, § 302(b), 117 Stat. 2066, 2224.
[13] The Medicare Payment Advisory Commission is an independent federal
body established by the BBA to advise the U.S. Congress on issues
affecting the Medicare program. Medicare Payment Advisory Commission,
Report to the Congress: Variation and Innovation in Medicare,
(Washington, D.C., 2003).
[14] Transition policies allowed beneficiaries to continue receiving
oxygen equipment and supplies and nebulizer drugs from their original
suppliers, regardless of whether the suppliers were included in the
demonstration. However, the supplier had to accept the new fees set by
the demonstration. Transition policies also allowed beneficiaries to
maintain pre-existing rental agreements or purchase contracts with
their suppliers of enteral nutrition equipment, hospital beds and
accessories, and manual wheelchairs and accessories. These suppliers
were paid under the normal statewide Medicare fee schedule for the
duration of the rental period.
[End of section]
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